Michigan lawmakers may vote on legislation to provide tax breaks for data centers next week as some legislators continue to demand environmental protections for the power and water-hungry facilities. 

A representative for State Rep. Joey Andrews (D-Saint Joseph), who sponsored one of the two bills in the Michigan House, told Planet Detroit that the legislation would come up for a vote in on Sept. 25. The Michigan Senate passed a bill granting tax incentives in May.

Leaders in other states say such incentives have been a bad deal. Connecticut, South Carolina and Georgia have seen pushback on data center incentives, with state lawmakers expressing concerns about the facilities’ climate impacts, preferential energy rates and insufficient return on investment. South Carolina State Rep. Shane Massey (R-Edgefield) said data centers were “electricity hogs that aren’t really providing a whole lot of jobs.”

Carbon emissions from these facilities may also be much higher than previously believed, with artificial intelligence driving energy use. A Guardian analysis found that Google, Microsoft, Meta, and Apple data centers produced 662% more emissions than were officially reported, contradicting some companies’ carbon neutrality claims.

In Michigan, data centers could derail the state’s 2023 renewable energy legislation, which aims to achieve 100% renewable generation by 2040. The legislation contains an “offramp” provision allowing coal or gas plants to stay online if there’s inadequate generation to meet demand.  

Environmental advocates also fear that data centers could impact the state’s water resources by using millions of gallons of groundwater per day to cool servers, potentially increasing rates for residential customers if utilities need to build out new infrastructure to serve the facilities.

Some lawmakers are pushing for protections for utility customers, water resources and state climate goals in the House legislation. However, facilities are expanding operations in the state even without tax breaks, prompting some legislators to call for stricter regulations for large water and energy users even if the tax breaks don’t pass.

Andrews’s district, which includes Benton Harbor, could see an estimated $21 million in annual property taxes from one proposed data center. He has sharply criticized environmental groups, saying they’re undermining investment in predominantly Black communities.

“Honestly, they’ve just been lying to people about it,” Andrews told southwest Michigan’s The Herald Palladium in August. “We consider it pretty insulting that they’ll raise money talking about racial equity injustice and then, when a project that actually resolves equity injustice comes to our community, they suddenly decide that that’s not acceptable.”

Derrell Slaughter, Michigan policy director for climate and energy at the Natural Resources Defense Council, responded to Andrews’ comments, telling Planet Detroit that racial equity issues  “are never ‘resolved’ by any project” and that enforceable standards were needed to protect ratepayers as well as air and water quality.

‘Not enough’: Advocates and lawmakers say environmental protections inadequate, despite amendments and MPSC rate ruling 

DTE Energy CEO Jerry Norcia was bullish that the tax breaks would pass in July, saying on an earnings call that Michigan Gov. Gretchen Whitmer and the legislature supported the legislation. Yet, lawmakers opposing the legislation, which the Michigan House blocked in June, say little has happened to change their position.

“I’m not nearly as confident as Jerry Norcia that there’s adequate support to get this through,” State Rep. Laurie Pohutsky, (D-Livonia) told Planet Detroit, adding that negotiations over adding environmental and ratepayer protections were currently at an “impasse.”

Dozens of Republicans have also voted against previous bills that were part of the incentive scheme. James Hohman, director of fiscal policy for the Mackinac Center for Public Policy, a free market think tank, said it was unfair for the state to exempt certain industries from taxes.

“It is the state’s job to establish a taxing policy for everyone and establish a level playing field for everyone,” he said. 

Andrews’ office sent Planet Detroit an amendment the legislation to require data centers to hook up to municipal water utilities rather than drawing groundwater directly, as well as an amendment to prevent residential customers from subsidizing lower energy rates for data centers.

However, these items were also included in the legislation that was blocked in June. Charlotte Jameson, chief policy officer for the Michigan Environmental Council, said the amendments weren’t “fine-tuned enough” to protect ratepayers. She said some of the costs of providing power to data centers could still be put on residential customers and that large water systems might cut their own deals with data centers, leaving others to pay more.

In early June, the Michigan Public Service approved proposals by DTE and Consumers Energy to change the rates for large energy users to “ensure that the costs of any additional capacity needed for energy-intensive developments such as data centers aren’t borne by other ratepayers” with utilities needing to develop new rates for data centers.

Amy Bandyk, executive director of the Citizens Utility Board of Michigan, said the ruling might not completely prevent data center costs from being shifted to customers. Other ratepayers could potentially be stuck with costs if a company leaves the state or if new rules are adopted.

The amendments included in the House bills don’t require companies to build renewable energy or participate in utility green pricing programs, which could prevent data centers from triggering offramps in the renewable energy law. And data centers could still impact groundwater supplies if municipal utilities that use groundwater end up using significantly more.

Researchers say data centers can use as much as 5 million gallons of water a day to cool servers. This is far more than water bottling operations like the proposed Nestle facility in Evart, Michigan, which is planned to draw roughly half a million gallons a day. Environmentalists warned that these large extractions could cause creeks in the area to dry up.

Climate and water safeguards may be needed even if tax incentives fail

Companies like Ault Alliance Inc. and Switch Inc. already plan to expand data centers in the state, prompting lawmakers to consider how to address the industry’s climate and water impacts even if the tax incentive legislation doesn’t pass. No such legislation has yet been put forth in Michigan. Efforts to pass laws restricting data centers in Virginia have failed to gain traction.

“We have to understand our regulatory system and make sure that we don’t have (data centers) showing up in places where it’s going to be a real problem,” said State Sen. Rosemary Bayer (D-West Bloomfield.

Bayer said she wants to prevent data centers from using more than five million gallons of water a day if the water utility they’re hooked up to uses groundwater. 

Legislators could also require data centers to capture steam from smokestacks to reduce the amount of water escaping from facilities or mandate that facilities use closed-loop geothermal systems to limit the amount of water needed to cool servers, Bayer said.

Even if the facilities don’t receive tax breaks, Pohutsky said all large energy users need to be examined to make sure they’re not undermining the state’s climate goals.

Virginia advocates have called for data centers to meet their energy needs with local, 24/7 renewable energy and battery storage. This would prevent new fossil fuel plants from opening and reduce the need for the thousands of backup generators surrounding the facilities. 

Diesel backup generators could increase air pollution in places like Benton Harbor and southeast Michigan that already deal with significant ozone pollution. And Michigan’s ongoing problem with power outages could force data centers to rely on these train car-size generators frequently.

Pohutsky doubted Democratic legislators would want to pass tax breaks before the election. But if legislation isn’t passed next week, the lame duck period could offer lawmakers another opportunity to cut a last-minute deal.

“Lame duck is a strange time in the legislature, so I suppose that things could change then,” Pohutsky said.

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